Week of Dec 7, 2009

A couple of trades since my last blog. I know I had been out for a while.

I closed my STP Nov 16 Put at $1.59, which I opened at $1.7. Minus trading fees, I made a small lost. At the same time,  I sold STP Jan 15 Put at $1.86, which is at $0.65 now.

Yesterday, I closed my STP Dec 14 Put at $0.15, which I opened at $1.25. All in, a 7% gain.

I am hoping to close my STP Dec 16 Put soon if the trend is favourable.

Ciao for now and may you all have a prosperous week.

OPTION Basics (3) (CALL and PUT - Sellers' Perspective)

Now, we turn our attention towards “sellers” perspectives.

Call Option

Sell Call: When an investor sells a Call, he is selling the right to Call buyer, or granting the Call buyer the right to buy 100 shares of the underlying stock at the striking price from him, any time prior to the expiration. Another way of putting it is the seller is obligated to sell 100 shares of the underlying stock to the Call buyer at the strike price.

In contrast to the Call buyers, Call sellers collect the premiums.

Example 1:

Mr. A sells “1 AIG Aug 12 Call at $1.50”.

Mr. A is selling the right to the Call buyer, say Mr.B, to purchase 100 shares of AIG at the price of $12/share between the point of transaction till the expiry date from Mr. A.

The call seller, Mr. A would collect the $1.50/share (the premium).

Suppose at the end of the expiration, AIG stock was traded at $10/share, the option would expire worthless and the Call seller, Mr.A, would earn the full premium.

So a Call seller is bearish on the stock. He will earn the full premium if the shares expire below the strike price.

Uncovered Calls/Covered Calls

When you sell a call but you do not own 100 shares of the underlying stock, this option is call “naked option”; “uncovered option” or “uncovered call”. This type of trade is extremely risky as the share price could have unlimited up side.

Given the earlier example:

Mr. A sells “1 AIG Aug 12 Call at $1.50”.

Suppose the share of AIG has gone up to $30/share. The buyer exercises the option. Mr. A needs to buy 100 shares of AIG from the market at $30/share and sell them to the Call buyer at $12/share.

Thus for Call seller, it is always good to own 100 shares of the underlying stock.

So when you own the 100 share of the underlying stock and when you sell the Call, you are covering your position. Such trade is called “Covered Calls”
Put Option

Sell Put: When you sell a Put, you are granting the Put buyer to sell you 100 shares of the underlying stock at the strike price. Should the Put is exercised, you are obligated to buy 100 shares from the Put buyer. 

Put sellers collect premium.

Example 2:

Mr. A sells “1 AIG Aug 12 Put at $1.50”.

Mr. A is granting the Put buyer to sell him 100 shares of AIG at $12/share.

Suppose at the end of the expiration, AIG stock has risen to $15/share. The option would expire worthless and Mr.A would collect the full premium.

Thus, Put seller is bullish on the stock. He hopes that the share price would close above the strike price, thus the option would expires worthless so that he could collect the premium.

Week of Oct 19, 2009

Exactly a week ago, I sold an AIG Nov 45 Call @ $4.85. AIG was traded at high $43 then. Thanks to recent drop, I closed this call today at $2.87. A net gain of ~4% in a week. I am quite happy with this trade even though I am fully aware that potentially AIG could drop further from here. I am trying to lock in on the profit for my Nov target. 

On a separate note, I sold STP Dec 16 Put @ $2.05. This is a potential 5.5%/month gain. Hope my choice is right.

Oct 16, 09

Back in end of Aug, I wrote a AIG Nov 33 Put @ $5.50. It was the first trade I made that is longer than one month. I decided to close this today @ $0.82. All in all a net of 13.53% in a month and a half. I am quite happy with this. If I hold my other Nov trades even, I would have basically achieved my Nov target. Additional gain would be the icing on the cake. I have a AIG Nov 45 Call and STP Nov 16 Put. My AIG is in green where as STP is in red. Let's see what happens.

In the mean time, I just wrote STP Dec 14 Put @ $1.25.

Week of Oct 12, 2009

This week is the last week for Oct expiration. I have two open trades. C Oct 5 Put @ $0.63 and STP Oct 16 Put @ $1.63. Unfortunately both are in the money, but fortunately, if both stocks could hold at their current level, I would still be in the green. I am looking forward to Nov as I have an AIG Nov 33 Put @ $5.50. Also, I wrote AIG Jan 35 Put @ $5.95. As you can see, I am rather conservative if you may say, or "chicken". I tend to write quite far out of the money. I am trying to minimize my risk to hope to achieve average of 3% or more return monthly through option writing. So far, I made loss in July -2%; +5% in Aug; +6% in Sept; +1% in Oct. Will see how Nov goes.

Also, I have been sitting on 100 shares of AIG and have not had a chance to utilize it, till today. I decided to write AIG Nov 45 Call @ $4.85. It is kind of risky as we are in the midst earning season. But, it could go either way as I see the outlook is still uncertain. Should AIG goes up, I will need to see if I want to give up my shares or roll forward.

10/15/09:
It is too unfortunate that market has given in on the recent up trend just a couple of days before the Oct expiration. I just closed my C Oct 5 Put @ $0.25, which I opened @ $0.63. About 6% net. I also closed my STP Oct 16 Put @ $1.00 (~2.5% net).
For STP, I did a spread to roll over to Nov @$1.7.

OPTION Basics (2) (CALL and PUT)

There are essentially two types of options:

1. Call Option

2. Put Option

For each of the Call/Put, there will be buyer and seller. Let us look into each of the scenario. We will go through “buyer” perspective for both Call and Put before touching on “seller” perspective.

Call Option

Buy Call: When an investor buys a Call, he is buying the right to purchase the underlying stock (100 shares) at the specified fixed price (strike price) by the specified date (expiration) in the future. To re-iterate the examples given.

Example 1:

Mr. A buys “1 AIG Aug 12 Call at $1.50”.

Mr. A is buying the right to purchase 100 shares of AIG at the price of $12/share between the point of transaction till the expiry date.

Mr. A pays $1.50/share (the premium) to attain this right.

So a Call buyer would profit if the share price goes up. A Call buyer is bullish on the stock.

Suppose at the end of the expiration, AIG stock has risen to $17/share, the buyer would close the transaction and make $5 gain ($17-$12) on the stock, “EXCLUDING” transaction fees and premium paid.

Put Option

Buy Put: When an investor is buying a Put, he is buying the right to “sell” the underlying stock (100 shares) at the specified fixed price (strike price) by the specified date (expiration) in the future.

Example 2:

Mr. A buys “1 AIG Aug 12 Put at $1.50”.

Mr. A is buying the right to Sell 100 shares of AIG at the price of $12/share between the point of transaction till the expiry date.

Contrary of buyer of Call, the buyer of Put is bearish of the stock. A Put buyer would profit if the share price drop.

Suppose at the end of the expiration, AIG stock has dropped to $9/share, the buyer would close the transaction and make $3 gain ($12-$9) on the stock, “EXCLUDING” transaction fees and premium paid.

On my next post, I will touch on sellers' perspective for both CALL and PUT.

Week of Sept 21, 2009

What a day for AIG. No trade for today, but I would like to mention that both my AIG Sept 15 and 19 Put had yielded 5.5% and 6.5% respectively. My initial target is have and average of 3% to 4% return monthly. So far I am still there on my monthly target.

Week of Sept 14, 2009

Oh well...I been out for a few weeks...

Lets see what's new. Well, I closed C Sept 4 Put @$0.04 (bought at $0.34), resulted a net of 5.88%, based on my calculation (minus fees etc)

Also, I wrote AIG Nov 33 Put @ $5.50 back when AIG was at $45, premium is now at $6.70. Now that didn't go well. :(

Today, I did a spread. Bought to close my STP Sept 16 Put @ $0.92 (sold at $1.10). Still a loss but minimal. I wrote STP Oct 16 Put @ $1.63.

Hope I am back for more as been really busy with work and was really not able to focus...

Week of Aug 24, 2009

Not much has happened for the pass week. I had basically held on to my trades. I had AIG Sept 15 and 19 Put but it seems that even this is deep out of the money, the time premium is still there so I guess I will sit on these till expire.

As for my C Sept 4 Put, I will consider to close and free up my fund for next trade sometime next week of so.

One trade I made this week was selling C Oct 5 Put @ $0.63. Again, after I sold, Citi traded south. It would have been better if I were to waited a couple of days but, hey, who knows.

Anyway, Citigroup has trade up and I am in green now. I hope the momentum of financial stocks would continue for a while but it is still quite uncertain at this point of time.

Have a nice weekend.

Week of Aug 17, 2009

On early Aug, I sold AIG Sept 11 Put @ $1.01. It is now at $0.17. Since I need some fund to write new puts, I decided to close this, thus a 6.59% net gain in about 2 weeks. Not too shabby.

I am trying to explore on LEAPS. If the price is right, I may buy some LEAP calls. Will see if there is any attractive potentials.

Week of Aug 10, 2009

I closed AIG Aug 14 Put @ $0.1, which I wrote on Aug 5th for $0.69. Net 3.39%.

Follow with writing AIG Sept 19 Put @ $1.45. A bit risky i know but...

Week of Aug 3, 2009

I sold AIG Aug 9 Put @ $0.79 on 7/17. I just closed this today at $0.17. A rough 5% net gain in slightly more than two weeks. I followed by selling AIG Sept 11 Put @ $1.01. I am trying to take advantage of the time value on the premium. I hope AIG would stay above $11 in weeks to come.

OPTION Basics (1) (What is an Option?)

One of my plans is to use this blog to share what I know and learn on option trading, other than creating a place to welcome anyone to share their experiences and success stories and even set backs.

So...What is an Option?

An option is a contract that provides the buyer/seller with the right to buy or sell the underlying stock (100 shares) at the specified fixed price (strike price) by the specified date (expiration) in the future.

A unit of an Option is called a contract. A contract consists of 100 shares of the underlying stock.

Strike price refers to the price which the buyer/seller agree to transact on irrespective of the actual price of the stock in the future.

E.g.

Mr. A buys “1 AIG Aug 12 Call at $1.50”.

1 – number of contract (100shares/contract)

AIG – the underlying stock

Aug – Option expiring month (Option expires on the 3rd Friday of each month)

12 – is the strike price

Call – Call option

$1.50 is the premium Mr. A pays for this contract. This $ is stated as per share basis.

So $1.50 X 100 shares => Mr. A is paying $150 of premium (excluding transaction fees)

In essence, Mr. A is buying the right to purchase 100 shares of AIG at the price of $12/share between the point of transaction till the expiry date.

Mr. A pays $1.50/share (the premium) to attain this right.

Week of July27, 2009

Market had a huge run last week. I am expecting a softer trend this week. One of my targeted trade was writing a call for STP, which I own as well. Solar stock has regain strength partly due to the recent news on the Chinese government subsidizing the deployment on solar energy.

I decided to go ahead and wrote an STP Aug 22 Call at $1.00. Will see how it goes.

Week of July 20, 2009

Well another week is here and with so may corporate earnings lining up. This is going to be an interesting week.

A couple of weeks ago, I sold ABX Aug 30 PUT at $1.40. Now that ABX has risen, the same PUT has dropped to $0.15bid and $0.25ask. I managed to close this at $0.22. Not too shabby for a two weeks return. Even though % wise may not be that high but I felt ABX was stable and worth the trade.

I was tempted to roll up but the premium is not very attractive at this point of time. Will sit on this.

Week of July13, 2009

Hi, I welcome any comments on your view and strategy for this week. Feel free.

AIG and ABX

Just to share my recent trades late last week.

Sold AIG July 10 put at $1.01 

Sold ABX Aug 30 put at $1.40

Any comments?

Welcome!!!!

Hi!!! Welcome to my new blog. First I must say that I am new to this. Any feedbacks are welcomed. I am also new to option trading and I am using this blog to openly share my new experience and hopefully a site for those interested in trading option to share their point of view. Thank you!!!